Illinois agency sells off more of its student loans

Tuesday

Jul 31, 2007 at 12:01 AMJul 31, 2007 at 8:52 PM

The Illinois Student Assistance Commission closed on the sale of nearly $1.4 billion worth of its student loan portfolio Monday, a deal that will garner about $46 million for the agency, a spokesman said.

Adriana Colindres

The Illinois Student Assistance Commission closed on the sale of nearly $1.4 billion worth of its student loan portfolio Monday, a deal that will garner about $46 million for the agency, a spokesman said.

The transaction marks the second time this year that ISAC has sold part of its loan portfolio. In January, the agency sold a $648 million chunk.

The ISAC board plans to conduct a third sale by the end of the year, but board members haven’t yet decided on the specifics, said spokesman Claude Walker.

In the transaction that closed Monday, the winning bids came from two Texas-based companies: Brazos Higher Education Service Corp. of Waco and Panhandle-Plains Higher Education Authority of Canyon. A total of 10 bidders expressed interest in buying the portfolio.

Walker said the two winning bidders paid a “premium” of 3.3 percent on top of the $1.38 billion face value of the loans, which translates to proceeds of roughly $46 million for ISAC.

That’s less than what ISAC Chairman Don McNeil had estimated in June, when he said agency officials thought the premium would be 4 percent to 5 percent, meaning that ISAC would make between $52 million and $65 million.

Proceeds will be used to retire part of the agency’s existing debt, to fund need-based Monetary Award Program grants for Illinois college students and “to support state programs as authorized by the Illinois General Assembly,” an ISAC news release said.

Monday’s portfolio sale consisted of 368,924 student loans made to 191,914 borrowers, who owe an average of $7,239. More than 90 percent of the loans were to students who didn’t live or attend college in Illinois. A condition of the sale prohibits the winning bidders from boosting interest rates or otherwise diminishing borrowers’ benefits.

ISAC has been working to make itself more focused on helping Illinois students, rather than out-of-state students.

“In light of dramatic changes in the student loan industry and the specter of shrinking federal subsidies, ISAC must cut the amount of risk we take on behalf of non-Illinois students attending non-Illinois schools,” McNeil said in a news release Monday.

But some lawmakers repeatedly have expressed reservations about selling the ISAC student loan portfolio.

“I’m troubled by this, as I have been (by) the other efforts of the administration to sell off assets and generate one-time revenues and then put them into programs that are not one-time expenditures,” one of the critics, Sen. Dale Righter, R-Mattoon, said Monday.

He added: “One-time expenditures into an ongoing program only creates unfunded obligations out in the future.”

Adriana Colindres can be reached at (217) 782-6292 or adriana.colindres@sj-r.com.